It also enables investors to assess companies’ exposure to risks such as climate change, financial mismanagement, and unfair working practices.
Many pension schemes are focusing on ESG factors, as they look at how sustainable – and in tune with their values and outlooks – their investments are. These factors could include:
Environmental
- pollution
- carbon emissions
- energy efficiency
Social
- health and safety
- workforce diversity
- working conditions
Governance
- business ethics
- shareholder rights
- executive compensation
The main goal of the Trustee is to have enough assets to pay benefits as they are due, while incorporating ESG factors into investment analysis and decision-making processes. The Trustee, along with its advisers, works to ensure that ESG policies are included in the Scheme’s investment strategy, while still monitoring and managing risk.
Climate change and its impact on the Scheme
The global response to climate change is expected to transform every area of our lives, including retirement. To keep temperature rises in line with international agreements, greenhouse gas emissions must fall sharply. Climate change has the potential to have a big effect on scheme investments and the companies that support pension schemes.
What are the requirements for pension schemes?
Pension schemes in the UK are at the forefront of tackling climate risk.
Last year, the UK became the first country in the world to introduce new legal requirements for pension scheme trustees to assess – and publish – the financial risks of climate change within their portfolios. This means trustees must do the following:
- Set out, in their Statement of Investment Principles (SIP), their policies on stewardship and on financially material ESG considerations, including climate change.
- Publish their SIP and their implementation statement, which outlines how key activities and decisions have helped them achieve certain policies and objectives, on their website, to enable public scrutiny.
The Scheme’s SIP and implementation statement are available online at [add webpage].
Additional expectations for defined benefit (DB) pension schemes
As well as the requirements listed above, The Pensions Regulator (TPR) has set out clear expectations that trustees of all defined benefit (DB) pension schemes should consider the impact of climate change on the scheme’s financial position, investment strategy, and the support provided by the Company.
The Trustee believes that the importance of ESG considerations will continue to increase over time, and has built an ongoing review of these factors into the annual business plan to make sure that the policy evolves in line with emerging developments.
